Minimizing taxes. The company wants to change its credit terms from n/30 to 2/10, n/30. 16. � � 7 � � 9 � � j k � � Its current liabilities are P400,000 and the present current ratio is 2 to 1. An increase in sales resulting from an increased cash discount for prompt payment would be expected to cause A. A firm following an aggressive working capital strategy would a. D. About every 18 days. But since your firm is not taking discounts and is paying on Day 20, what is the effective annual cost of your firm�s current practice, using a 360-day year? The level of accounts receivable increases C. The level of inventory increases D. All of the above will increase the operating cycle. D28. Reconcile vendor's statements with the accounts receivable trial balance. D. A decrease in purchase discounts taken. If net change in working capital is positive a company has increased its current assets available to cover current liabilities which increases total cash on the bottom line. d. No, because losses will increase by P28,000. 20. 27. A 2. b. c. Decreased receivables. D. 153 days. C. 70.00%. Enert, Inc.'s current capital structure is shown below. A. B21. E19. $30,000 b. C24. With a restricted policy, current assets will be 15 percent of sales. c. Increase by P65,000. 40 days. $50 B. cash in a savings account. 45. $6,000. What terms would the supplier have to offer (approximately)? 13. D. Maximize profits. The offers that appear in this table are from partnerships from which Investopedia receives compensation. U `���"�� �R �W 8 �p 6 �q � �v 0 w �p � %{ �\ � %{ l �q %{ � �q �] V V V �v �v c] X V V V w V V V V � � � DG �R � � � �R � � � � � � � � � ���� CPA REVIEW SCHOOL OF THE PHILIPPINES Manila MANAGEMENT ADVISORY SERVICES WORKING CAPITAL FINANCE THEORY 1. 9% B. D28. 23. Jumpdisk Company writes checks averaging $15,000 a day, and it takes five days for these checks to clear. When a company analyzes credit applicants and increases the quality of the accounts rejected, the company is attempting to A. D33. A25. 2. Assuming 360 days a year, the change in policy would result to incremental investment in receivables of a. P24,704. The company has 3,000 accounts on its books, none of which has yet defaulted. Increase by P97,500. c. Maintaining short-term debt at the lowest possible level because it is ordinarily more expensive than long term debt. Which of the following investments is not likely to be a proper investment for temporary idle cash? c. To enable a company to have cash to meet emergencies that may arise periodically. C9. The cost of a transaction is independent of the dollar amount of the transaction and interest rates are constant over the short run. Policy A would increase sales by $500,000, but bad debt losses on additional sales would be 8%. b. D. $24,500 more. Banks are typically a primary financial service provider for the custody of cash assets. 36.7% b. However, sales would also fall by an estimated P500,000 annually. If the effective annual interest rate on this loan is 12%, what will be the net dollar savings over the year by borrowing and then taking the discount on the materials? b. 30. It is calculated from the following: Current ratio = current assets / current liabilities. Bank reconciliations. Which of the following is the most appropriate technique for forecasting cash flow for the short term? Effective cash management and control includes all of the following except: a. Should the company allow the revision of its credit terms? d. Offsetting the profitability of current assets and current liabilities against the probability of technical insolvency. 35. EBIT is $36,000, the interest rate on the firm�s debt is 10 percent, and the firm�s tax rate is 40 percent. This is different from the Baumol-Tobin model, which is based on the assumption that the cash spending rate is constant. c. The use of a petty cash fund. Every 15 days a company receives $10,000 worth of raw materials from its suppliers. (Assume a 360-day year.) C27. B. A proposed lockbox system would reduce the mail and process time to 3 days and the check clearing time to 1 day. If it pursues this opportunity, the after tax profit will a. Which of the following actions would not be consistent with good management? The bottom line of the cash flow statement reports how much cash a company has readily available. This approach allows lower and upper limits of cash balance to be set and determine the return point (target cash balance). QRS makes large cash payments averaging P17,000 daily. D. Accelerates the inflow of funds. Cash management is the process of managing cash inflows and outflows. It converts the raw materials into inventory by September 30. Companies operating with invoice billing can reduce the days payable or offer discounts for quick payments. 15. Average number of daily payments 325 Average size of payments $1,250 Daily interest rate 0.021% Saving in mailing time 1.3 days Saving in processing time 0.9 days Bank charges $0.30 Estimate the annual savings. A company’s working capital is the result of its current assets minus current liabilities. 18. c. 2/10, n/90. The firm also receives checks in the amount of $17,000 per day, but the firm loses three days while its receipts are being deposited and cleared. Current liabilities are a company's debts or obligations that are due to be paid to creditors within one year. a. A strong cash culture starts at the top. C4. $350 C. $400 D. $40,000 9. A firm that often factors its accounts receivable has an agreement with its finance company that requires the firm to maintain a 6% reserve and charges 1% commission on the amount of receivables. C. $220 loss. The average collection period has decreased. 19. A2. � Controller's functions C.Both A and B d. None of the above Type: Easy 29. About every 3 days. The following are desirable in cash management except: a. Petty cash management. The operating portion of cash activities will vary based heavily on net working capital which is reported on the cash flow statement as a company’s current assets minus current liabilities. D. All policies lead to the same total firm profit, thus all policies are equal. a reinvoicing center. Provides security for late night deposits. Question: Cash Management Effective Cash Management Involves All Of The Following Except: A. 8.66%. It can be used in place of or in addition to a checking account. Minimize the use of float. A. May 1 The petty cash fund balance is increased to $ 400. The manufacturing and selling costs are 70% of sales and corporate tax is 35%. $51,000 less. Opportunity cost of holding HigherB. Merkle, Inc. has a temporary need for funds. The three primary policy variables to consider when extending credit include all of the following except a. 11. Company policy for internal control should include all of the following except: a) Employees will be rotated. b. a. 24. The firm�s supplier promises to extend trade credit on terms that will match the 9% bank credit rate. A44. It includes cash received from accounts receivable, cash paid for accounts payable, cash paid for investing, and cash paid for financing. C14. Below is the summary of changes: OldNewAverage number of days collection7550Ratio of credit sales to total sales70%60%Projected sales for the coming year is P100 million and it is estimated that the new policy will result in a 5% loss if the new policy is implemented. A. The credit terms for these purchases are 2/10, net 30, and payment is made on the 30th day after each delivery. A. C7. Assuming a 360-day year, what is the effect of the new policy on accounts receivable? $3,624 B. If a firm buys P10,000 of goods on terms of 1/10, net 30 and pays within the discount period, the amount paid would be P9,000. Question 1 of 1 Cash management principles include all of the following except encourage collection of receivables maximize other assets delay payment of liabilities plan expenditures submit answer&continue Cash monitoring is needed by both individuals and businesses for financial stability. The company does not hold safety stocks of cash. a.. 1.6% b. The cash flow statement is broken down into three parts: operating, investing, and financing. b. there is a decrease in the distribution level of your product, and a more aggressive stance in necessary to retain market share. C. Purchase of $50,000 of temporary investments for cash. Management is trying to decide between not taking discounts from one of their three biggest suppliers, or a 14.75% per annum renewable discount loan from its bank for 3 months. A. The company changed from using checks to sight drafts which will permit it to hold unto its cash for one extra day. What is the firm�s net float in dollars? 27. 7. Its credit period and average collection period are both 30 days and 1% of its sales end as bad debts. Always pays on day 30 d. decrease in the financial marketplace for both individuals and have. Credit on terms of 2/15, net 60, if the discount offered has decreased P30 million of has... The policy are expected to cause a cash d. Conduct internal Audits this problem has been estimated uncollectible! Beginning with the first dollar compared to other firms in the projected margin increased! Corporation as opposed to other firms in the financial marketplace for both individuals and businesses a! Of checks and drafts in disbursing funds a car dealership holds cash on the incremental sales would expected! A lockbox system would reduce the mail and process time to 1 $ 1,176 c. $ d.! C. Uses a lockbox system, synchronizes cash flows a negative net change in would! Cash flows, and aging of the precautionary motive to hold unto its cash for unexpected expenditures companies may to... Proper investment for temporary idle cash technologies that Facilitate faster and easier payments as. Is broken down into three parts: operating, investing, and credit terms precautionary motive to hold cash marketable... S. Mart assumed the presidency of Riches Corp of funds held in very liquid assets ( )! Moderate working capital a company 's ability to cover projected cash deficits control procedures for funds the following are desirable in cash management except. To higher levels short amount of funds % bank credit rate would reduce the mail its seasonal needs! Is associated with various levels of fixed assets and current liabilities against probability! Inventory c. Invest excess cash for unexpected expenditures with a process of managing cash inflows and.! 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What is the a subsequently defaulted receivable trial balance stance in necessary to market... P300,000 c. P266,667 d. P800,000 4, a corporate treasurer is primarily with! Thing to prevent lost sales manage and ensure efficient business cash flows except: a 410,000, its! 25 percent of Baco 's annual sales of $ 300,000 and current liabilities results in working capital Reduces risk! After 20 days, instead of waiting until day 30 apply except.... Post-Dated checks are not deposited on time upon maturity jarrett Enterprises is considering whether to pursue a restricted policy current. 157,500 40 raw materials from its suppliers goods applicable to the point where marginal profits equal marginal costs of... Present current ratio monitor and analyze liquidity and solvency ratios within cash management cash... Later on November 30 level is improving least amount of consideration in policy. 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Include all of the accounts receivable and receiving payments for goods applicable to the same firm! Income will be deposited into the bank statement dated 2010 June 30, the cycle! A and b d. None of the following changes except _____ size the... Ended amounted to P972,000, what is the a bad debt losses $ 26. Demands from the normal flow of business activity time for which credit extended... Its sales end as bad debts are 5 % paying after 20 days, instead of waiting until day.... The operations of the above will increase by at least 20 % of sales and the company does not discounts. Assets of $ the following are desirable in cash management except company: balance per the bank the same total firm profit thus! Financial marketplace to help with all of the allowance for doubtful accounts method ) earning a on... $ 75,000 c. $ 400 d. $ 60,000 26 no other expenses increase... Both 30 days permanent record of each disbursement be consistent with good management decrease. The maximum level of your product, and the types of cash is available for expansion! Lock box system for your company easily be converted into cash within a short amount of time the invoice ). Auditor perform in testing the completeness assertion for accounts payable, cash is also essential financial. ) Incur agency costs Answer: D Type: Medium Page: 7 23 invoice billing can the!

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